Revokes The Civil Servant Life Allowance, Saudi Arabia Triples VAT Amid Crisis

The impact of the Covid-19 pandemic on oil prices is significant. Since the corona virus broke out, world oil prices continues to plummet. This makes oil producing countries like Saudi Arabia took strategic policies which were also drastic. Among others, by increasing the Value Added Tax (VAT) rate up to three times to 15 percent starting 1 July 2020 and temporarily suspend the cost of life allowance for 1.5 million civil servants as of 1 June 2020. 

Minister of Finance Mohammed Al-Jadaan said these two steps were taken as part of austerity efforts to support the Saudi Arabian economy which was quite affected by Corona.

"These measures are painful but necessary to maintain financial and economic stability over the medium to long term. And overcome the unprecedented coronavirus crisis with the least damage possible," He explained as quoted from bbc.com.

The announcement of the double austerity policy was issued shortly after the oil-producing country's spending exceeded its revenue. It made the country suffered a deficit of USD9 billion in three months this year. It happened because the oil revenue dropped by almost 25% compared to the previous year to USD 34 billion. Overall, the income of the Kingdom decreased by 22%.

For information, Saudi Arabia first imposed a 5% VAT, around two years ago. The policy was taken to reduce the country's revenue dependence on oil. At about the same time, the government provided a life allowance of 1,000 riyals or equivalent to IDR 4 million per month for every civil servant to relieve the burden of increasing VAT and rising fuel price. Based on the official data in December 2019, at least 1.5 million people in the country work in the government sector.

According to worldometers data, as of 25 May 2020, there were 74,795 positive cases of corona in Saudi Arabia, with 399 deaths. While cited from arabnews.com, the government of Saudi Arabia has decided to relax restrictions in all areas of the Kingdom except Mecca as of 31 May. (Ken)